The Roth conversion is one of the most powerful retirement tax moves I know, and it’s also the one I see investors get wrong most often. Done at the right time, a properly executed conversion can save a household with a $1.5 million IRA hundreds of thousands of dollars across retirement and put more money in the hands of their heirs. Done in the wrong year, it can push you into a higher bracket, raise your Medicare premiums by several thousand dollars a year for two years, and turn previously tax-free Social Security benefits into taxable income.
So the question this calculator answers is specific: given your numbers, what’s the after-tax wealth difference between converting $X today and leaving it in your Traditional IRA?
When the math works
The principle is simple. You pay tax now at a known rate. The money grows tax-free. Qualified withdrawals are tax-free. So a Roth conversion makes sense when your current marginal rate is lower than the rate you’d face on eventual withdrawals.
Three situations where the math usually pencils out:
- The gap years between work and Social Security or RMDs. If you retire at 62 but don’t take Social Security until 70 (or your first Required Minimum Distribution at 73), you may have a decade of artificially low taxable income. Filling the 12% or 22% bracket with conversions during those years is, in my view, the single highest-leverage move in retirement tax planning. We do this with clients every year.
- You expect higher tax rates ahead. The 2017 Tax Cuts & Jobs Act brackets are scheduled to sunset, and the odds of Congress letting them expire aren’t zero. Future RMDs may also push you into a higher bracket whether you like it or not — once the IRS makes you take the money, you don’t choose the timing. Locking in today’s rate often beats deferring.
- Estate-planning leverage. A non-spouse heir who inherits a Traditional IRA pays ordinary income tax on every dollar withdrawn. The same heir inheriting a Roth pays nothing. Pre-paying tax on your own dollar means your beneficiaries inherit 100 cents on the dollar.
When the math doesn’t work
Here’s where I see investors talk themselves into a conversion that hurts them:
- You’ll be in a lower bracket in retirement. If you earn $400K today and expect $80K of retirement income, deferring beats converting. The math is the math.
- You’d use IRA money to pay the tax. The conversion only works if you can pay the tax bill from a non-IRA account — cash, brokerage, anywhere outside the IRA. Tap the IRA itself and you’ve shrunk the principal you were trying to protect.
- You’re within five years of needing the money. Each conversion has its own five-year clock for penalty-free principal access. If you’ll need to tap the converted dollars sooner, the conversion never has time to pay off.
- You’re sitting on an IRMAA cliff. Adding $50K of conversion income can push your AGI past the next Medicare-premium tier — that’s $1,500 to $5,000 per year per spouse for two years. Always check IRMAA before pulling the trigger. Some of the best Roth conversion years I’ve seen on paper become bad ideas the second you factor in the IRMAA hit.
What this calculator does
Enter your current age, retirement age, current Traditional IRA balance, the conversion amount you’re considering, and your current vs. retirement marginal tax rates. The tool will project:
- After-tax wealth at retirement if you convert this year
- After-tax wealth at retirement if you stay Traditional and pay ordinary tax at withdrawal
- The dollar difference — your “Roth advantage”
- Break-even years — how long the conversion needs to compound before recouping the up-front tax
A word of honesty: this is single-year math with constant tax assumptions. Real-world execution is messier. Future brackets shift. IRMAA cliffs aren’t modeled here. A multi-year conversion ladder usually beats a one-shot move. For households with $500K+ of investable assets, a coordinated tax-aware Roth ladder is part of the planning we do at T&T Capital Management — the kind of thing that needs more inputs than a single web form can capture, but always starts with a clear-eyed look at numbers like the ones below.
Run yours.